Cities have been tearing down crumbling, vacant houses for decades. The money for municipal demolition bills usually comes out of city budgets, but in Cleveland the housing crisis has started to change that equation.
Bill Beavers has lived on Cleveland's Dove Street since 1967. But on a recent sunny morning, Beavers is sitting on a neighbor's front porch, watching something he has never seen on his block before.
Across the street, a huge excavator is tearing through the front facade of a two-story wooden house. The top half of the house, windows and exterior wall fold as easily as cut weeds and tumble to the ground.
"Oh, it's good to see them tear these old structures down because nobody wants to move in them," Beavers says. "It costs too much to fix them up, you know?"
The house went into foreclosure two years ago, and when the family moved out, vandals stole the circuit panel and pipes. Other houses on the block are nicely kept up, but the street is in the 44105 zip code — which in 2007 had the dubious distinction of garnering the highest foreclosure rate in the nation.
Saturated with foreclosures, the lender that took back the house couldn't unload it for even $5,000.
"A property like that, on a street that's otherwise relatively stable but [in a] depressed market, probably needs to come down because it has way too much need on the inside," says Gus Frangos, head of the Cuyahoga County Land Bank, which oversees these demolitions. "If you take these pockmarks out, all of a sudden you stabilize the street a little bit."
Let's Make A Deal
When the land bank started two years ago, Frangos thought the group would have to pay its demolition bill from its own budget. But then the economy worsened and the foreclosures piled up. Lenders stuck with crumbling houses found themselves on the hook in the Cleveland Housing Court for hundreds of thousands of dollars worth of code violations.
The Cuyahoga County Land Bank, a quasi-government corporation, offered lenders a deal: We'll take your worst houses, if you pay to knock them down. This year, Fannie Mae and some of the country's biggest lenders — including Bank of America, Citibank and Wells Fargo — will help pay for half of the land bank's 700 scheduled demolitions.
Lenders pay $3,500 to $7,500 per house. Wells Fargo's Russ Cross says it's a sensible and responsible business plan.
"We want to make loans on an ongoing basis, and to do so, we need stable to rising home values," he says. "We've got to do whatever we can to protect home values in neighborhoods."
Some lenders are looking at starting similar programs in Detroit, Chicago and Milwaukee. Fannie Mae's P.J. McCarthy says the government-controlled mortgage giant has been donating properties and demolition funds to the Cuyahoga County Land Bank since 2009 because keeping the houses just doesn't make sense.
'Not A Cure-All'
"They are not going to sell on the market for much more than a few thousand dollars, and our costs in marketing those properties and preserving them generally exceed the costs," he says. "So the economics of the transaction make sense as well as the intent of the land bank to reduce supply and stabilize the neighborhood."
Dealing with foreclosures is a huge headache for financial institutions. RealtyTrac, an online marketplace for bank-owned property, counted more than 1.6 million foreclosures in the U.S. in July.
RealtyTrac's Rick Sharga says demolition programs like Cleveland's only start to address the backlog.
"Eliminating a handful of these houses really isn't going to be a cure-all in and of itself," he says. "It's one step in a much longer process that's going to be required before the housing market comes back."
In the meantime, cities have to figure out what to do with the newly vacant land.
In South Euclid, an eastern suburb of Cleveland, building inspector Rick Loconti is walking on a brick path through small plots of tomatoes, eggplants and sunflowers and remembers what used to be here.
"The house was so far gone, we couldn't fix it up and get any kind of a return, so we demolished the house, and we put in this community garden," he says. "And it's now become a source of community pride."
Loconti concedes there are more vacant lots than demand for community gardens. So municipalities are also offering newly vacated land to neighbors as side lots and putting other plots away for if and when the housing market improves here.